In June 2018, the Supreme Court upended e-commerce with a 5-4 ruling in South Dakota v. Wayfair, Inc., allowing states to collect sales tax for sales on the web in which the merchant had no physical presence in that state. The problem with the ruling, however, is that it opened the floodgates and provided no practical guidance for compliance, with Chief Justice John Roberts stating in his dissent that the ruling “breezily disregards the costs that its decision will impose on retailers,” adding that “correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.”
Larger retailers like Amazon are practically unaffected by the change. Amazon began voluntarily collecting sales taxes in states that levy them in 2012 for items sold by Amazon, though merchants selling on Amazon and other platforms bear the burden of complying with the hodgepodge of tax laws across the US.
This situation is further complicated by the California Tax and Fee Administration (CDTFA), which is pursuing up to eight years of unpaid back taxes from users of Fulfillment by Amazon (FBA) services when selling items through Amazon Marketplace, claiming that Amazon’s fulfillment centers constitute physical nexus in California. This interpretation of nexus—which is contested—makes merchants liable for sales tax in California for past sales, not just sales tax for items sold after the Wayfair decision.
The CDTFA has issued demand letters to Amazon to force disclosure of business information, according to correspondence provided to TechRepublic by the Online Merchants Guild, a trade association advocating for merchants including those utilizing FBA services. Likewise, the CDTFA is demanding that sellers obtain permits to sell in California, informing sellers that failing to “voluntarily comply” with registration “can be prosecuted” for a felony, punishable by up to three years in prison, and/or fines.
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by James Sanders
March 14, 2019